Justia Banking Opinion Summaries

The case concerns the former President and CEO of a New Orleans-based commercial bank, who was charged with conspiracy to commit bank fraud, bank fraud, and making false entries in bank records. The evidence at trial showed that he, along with other bank employees and borrowers, engaged in a scheme to misrepresent the creditworthiness of certain borrowers. This allowed the bank to issue loans to insolvent individuals, who then used the proceeds to pay off overdue and overdraft loans, thereby concealing the true financial state of the bank’s loan portfolio. The defendant did not dispute the existence of these loans but argued that he lacked the intent to defraud the bank.After the bank failed in 2017, resulting in significant losses to the FDIC, a federal grand jury indicted the defendant and several co-conspirators. Some co-defendants pleaded guilty, while the defendant proceeded to trial in the United States District Court for the Eastern District of Louisiana. The jury found him guilty on all counts, and he was sentenced to 170 months in prison and ordered to pay substantial restitution. The district court denied his post-trial motions for acquittal, arrest of judgment, and a new trial.On appeal, the United States Court of Appeals for the Fifth Circuit reviewed the sufficiency of the evidence, the jury instructions, the admission of lay and summary testimony, and the denial of a motion to dismiss based on the government’s handling of privileged emails. The Fifth Circuit held that the evidence was sufficient to support all convictions, the jury instructions were proper and tracked the relevant law, the evidentiary rulings were not an abuse of discretion, and the government’s conduct regarding privileged material did not warrant dismissal. The court affirmed the jury’s verdict in full. View "USA v. Ryan" on Justia Law

Two former officers and directors of a Texas community bank faced regulatory action after the bank failed in 2013 following significant losses during the 2008 financial crisis. The Office of the Comptroller of the Currency (OCC) alleged that the individuals engaged in unsafe and unsound banking practices, breached fiduciary duties, and filed materially inaccurate reports. The OCC’s claims centered on three main strategies: the bank’s practice of making loans to finance purchases of its holding company’s stock (which were then counted as capital), aggressive and risky sales of real estate owned by the bank, and improper accounting for nonaccrual loans. These actions allegedly overstated the bank’s capital and masked its true financial condition, ultimately resulting in substantial losses.After the OCC initiated an enforcement action in 2017, the matter was reassigned to a new Administrative Law Judge (ALJ) following the Supreme Court’s decision in Lucia v. SEC. The new ALJ ratified prior rulings, conducted a hearing, and issued a recommendation. The Comptroller adopted most of the ALJ’s findings but imposed industry bans and civil penalties on both petitioners, concluding that their conduct warranted prohibition from banking and monetary sanctions. The petitioners then sought review from the United States Court of Appeals for the Fifth Circuit.The Fifth Circuit denied the petition for review. The court held that the OCC’s enforcement action fell within the public rights doctrine, so the petitioners were not entitled to a jury trial under the Seventh Amendment. The court also found that the ALJ’s appointment was constitutionally valid, the enforcement action was timely under the applicable statute of limitations, and the agency’s evidentiary and procedural rulings were supported by substantial evidence. The court further upheld the Comptroller’s decision to impose prohibition orders and civil penalties, finding the preponderance of the evidence standard appropriate for such administrative proceedings. View "Ortega v. Office of the Comptroller of the Currency" on Justia Law

Cornelius Burgess, the former CEO of Herring Bank, was the subject of a Federal Deposit Insurance Corporation (FDIC) enforcement action that began with an investigation in 2010 and formal proceedings in 2014. An Administrative Law Judge (ALJ) recommended in 2017 that Burgess be removed from his position, barred from the banking industry, and fined $200,000. The FDIC Board adopted this recommendation, but the enforcement order was stayed pending the Supreme Court’s decision in Lucia v. SEC, which addressed the constitutionality of ALJ appointments. After Lucia, the case was remanded for a new hearing before a properly appointed ALJ, who again recommended the same sanctions in 2022. Before the FDIC Board could issue its final order, Burgess filed suit in the United States District Court for the Northern District of Texas, seeking to enjoin the Board from issuing its decision on constitutional grounds.The district court found it had jurisdiction to hear Burgess’s claims despite 12 U.S.C. § 1818(i)(1), which generally precludes such jurisdiction. The court denied injunctive relief on Burgess’s claims regarding unconstitutional removal protections for the Board and ALJs, finding he had not shown harm from those provisions. However, it granted an injunction based on his Seventh Amendment claim, concluding he was likely to succeed on the merits and that the other factors for injunctive relief were met. The FDIC appealed the injunction, and Burgess cross-appealed the denial of relief on his removal claims.The United States Court of Appeals for the Fifth Circuit held that 12 U.S.C. § 1818(i)(1) explicitly strips district courts of subject matter jurisdiction to enjoin or otherwise affect the issuance or enforcement of FDIC orders, including on constitutional grounds. The Fifth Circuit reversed the district court’s grant of injunctive relief and remanded with instructions to dismiss the case for lack of subject matter jurisdiction, declining to reach the merits of Burgess’s constitutional claims. View "Burgess v. Whang" on Justia Law

William Dexter Lucas was involved in schemes to fraudulently obtain small-business loans from the government and vehicle loans from private institutions. He pleaded guilty to conspiracy to commit bank and wire fraud and waived his right to appeal. His presentence investigation report (PSR) included details of his fraudulent activities and mentioned allegedly fraudulent social security benefits he had been receiving. At sentencing, the district court ordered Lucas to pay restitution to both the private institutions and the Social Security Administration (SSA). Lucas appealed his sentence, challenging the restitution orders for the vehicle loans and social security benefits.The United States District Court for the Southern District of Texas initially handled the case. Lucas objected to the PSR's restitution calculations, arguing that the vehicle loans restitution was ordered to the wrong victim and incorrectly calculated, and that the social security benefits restitution was improper because he was entitled to the benefits and the alleged fraud was not part of the same scheme as the offenses in his indictment. The district court recalculated the vehicle loans restitution but upheld the SSA restitution, finding that Lucas's statement to the SSA was fraudulent and that the SSA fraud was part of the same conduct as the fraud alleged in the indictment.The United States Court of Appeals for the Fifth Circuit reviewed the case. The court held that the SSA restitution was erroneous because the SSA fraud was not part of the same scheme or conspiracy as the offenses in the indictment. The court affirmed the vehicle loans restitution, finding that Lucas's challenge to the calculation was barred by his appeal waiver and that the dealerships were proper victims. The court affirmed the vehicle loans restitution but vacated the SSA restitution award. View "United States v. Lucas" on Justia Law

Matthew Kerns, the sole member and manager of Glade Creek Livestock, LLC, personally guaranteed a loan from First State Bank of Ben Wheeler (FSBBW) using equipment and cattle as collateral. When Glade Creek faced financial difficulties, Kerns sold some of the cattle, leading FSBBW to demand full repayment. Kerns filed for Chapter 7 bankruptcy, and during the automatic stay, FSBBW reported the sale of the collateral to a special ranger with the Texas and Southwestern Cattle Raisers Association (TSCRA). This led to Kerns' indictment and arrest for hindering a secured creditor.The bankruptcy court granted summary judgment in favor of FSBBW, holding that FSBBW's actions fell within the safe harbor provision of the Annunzio-Wylie Money Laundering Act, which protects financial institutions from liability for reporting possible violations of law. Kerns appealed to the district court, which affirmed the bankruptcy court's decision. Kerns then appealed to the United States Court of Appeals for the Fifth Circuit.The Fifth Circuit reviewed the case de novo and affirmed the lower courts' decisions. The court held that FSBBW's report to the special ranger was protected under the safe harbor provision of the Annunzio-Wylie Act, as the special ranger qualified as law enforcement under Texas law. The court also found that Kerns had forfeited his argument for the recusal of the bankruptcy judge by not raising it earlier, despite knowing the basis for recusal since 2021. The court concluded that FSBBW's conduct was shielded from liability, and the summary judgment in favor of FSBBW was affirmed. View "Kerns v. First State Bank" on Justia Law

The lender, Ocwen Loan Servicing, filed suit against the borrower. The borrower asserted affirmative defenses and a counterclaim alleging numerous violations of the Texas Constitution's home equity loan provisions. The district court granted summary judgment for the lender. The court concluded that the district court erred in finding that the borrower's affirmative defenses and counterclaims alleging violations of section 50(a)(6) of the Texas Constitution were barred by a four-year statute of limitations. The court explained that it must follow the Texas Supreme Court's recent holding in Wood v. HSBC Bank USA, N.A. that no statute of limitations applies to a borrower's allegations of violations of section 50(a)(6) of the Texas Constitution in a quiet title action, rather than the court's prior holding in Priester v. JP Morgan Chase Bank, N.A. The court reasoned that, although Wood concerned a borrower's quiet title action, Ocwen has not argued that Wood's statute of limitations holding should not be applied to the borrower's arguments simply because they were asserted as affirmative defenses and as a counterclaim. Accordingly, the court vacated and remanded. View "Ocwen Loan Servicing, LLC v. Berry" on Justia Law

Twelve individuals in the Houston area who receive Section 8 housing assistance filed suit against AmeriPro and Wells Fargo, alleging discrimination in violation of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et seq., on the basis of their receipt of public assistance income. The district court granted defendants' Rule 12(b)(6) motion and dismissed the claims. The court concluded that the Wells Fargo Applicants did not plausibly allege that Wells Fargo discriminated against them on the basis of their Section 8 income or failed to consider their Section 8 income in assessing their creditworthiness; the AmeriPro Inquirers did not plausibly allege that they are "applicants" under the ECOA because they did not actually apply for credit with AmeriPro; and the AmeriPro Applicants did not plausibly allege that Wells Fargo was a "creditor" with respect to them. Therefore, the court affirmed as to these claims. The court concluded that the AmeriPro Applicants did plausibly allege violations of the ECOA by alleging that AmeriPro refused to consider their Section 8 income in assessing their creditworthiness as mortgage applicants, and that they received mortgages on less favorable terms and in lesser amounts than they would have had their Section 8 income been considered. Accordingly, the court reversed as to these claims and remanded for further proceedings. View "Alexander v. Ameripro Funding" on Justia Law

This appeal involves the Bank, Ocwen, and Power Default's attempt to foreclose on property in Grand Prairie, Texas. On appeal, plaintiff challenged the district court's denial of her motion for remand based on its finding that Power Default, a non-diverse defendant and substitute trustee for the attempted foreclosure, was improperly joined in the proceeding because the foreclosure did not take place. The district court concluded that plaintiff had no wrongful foreclosure claim against Power Default absent an actual foreclosure. In this case, because she would have been unable to assert a cause of action against Power Default in state court, the district court found that joinder of Power Default as a defendant was improper. Therefore, the court agreed with the district court's analysis and conclusion denying plaintiff's motion to remand to state court. The court also agreed with the district court's grant of summary judgment to defendants, concluding that plaintiff may not assert a cause of action for wrongful foreclosure. Accordingly, the court affirmed the judgment. View "Foster v. Deutsche Bank National Trust Co." on Justia Law

The D’Oench, Duhme doctrine, which originated in the federal common law and is now codified at 12 U.S.C. 1823(e), prevents borrowers from relying on oral agreements they allegedly had with a failed bank to defend against collection efforts of a federal receiver like the FDIC. In this case, plaintiffs filed suit against Heritage for beach of contract and fraudulent inducement after Heritage foreclosed on plaintiffs' properties. While the suit was pending, Heritage was declared insolvent and the FDIC was appointed as receiver. That same day, the FDIC entered into a Purchase and Assumption Agreement with Trustmark, under which it transferred to Trustmark various Heritage assets and liabilities, including plaintiffs' notes and guaranties. The district court subsequently granted the FDIC's motion to dismiss. Trustmark then pleaded 1823(e) as a defense and filed counterclaims against plaintiffs for the amount still owing on the notes. The district court granted Trustmark's motion for summary judgment. The court rejected plaintiff's waiver arguments, concluding that nothing about Trustmark's agreement with the FDIC expressly or impliedly indicates a voluntary or intentional surrender by Trustmark of the section 1823(e) defense it inherited from the FDIC. The court also rejected plaintiffs' assertion that Trustmark waived this defense by raising it in a dilatory manner. Finally, even viewing an executive’s testimony about the purported side agreement in favor of plaintiffs, there is no evidence from which a jury might conclude that all of the conditions necessary to overcome section 1823(e) are present. Accordingly, the court affirmed the judgment. View "C&C Inv. Prop. v. Trustmark Nat'l Bank" on Justia Law

LSR appealed the district court's grant of summary judgment denying its wrongful-foreclosure claims and award of attorneys' fees to Wells Fargo. The court concluded that Wells Fargo is entitled to summary judgment on the wrongful-foreclosure claim because LSR cannot establish an essential element. Under Texas law, a party alleging wrongful foreclosure must prove a defect in the foreclosure-sale proceedings. In this case, the court concluded that there is no genuine dispute as to whether Wells Fargo mailed notices of intent to accelerate. The court also concluded that the district court did not abuse its discretion in finding that LSR brought its Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. 1692g, claim in bad faith and for the purpose of harassment. Accordingly, the court affirmed the judgment. View "LSR Consulting v. Wells Fargo Bank" on Justia Law